PRAVIN ELECTRICALS PVT. LTD. versus GALAXY INFRA AND ENGINEERING PVT. LTD.

[2021] 1 S.C.R.

PRAVIN ELECTRICALS PVT. LTD.

GALAXY INFRA AND ENGINEERING PVT. LTD.

(Civil Appeal No. 825 of 2021)

MARCH 08, 2021

[R. F. NARIMAN, B. R. GAVAI ANDHRISHIKESH ROY, JJ.]

Arbitration and Conciliation Act, 1996 – ss.8, 11(6), (6A),(7) – Petition filed by respondent u/s.11(6) for appointment of aCSole Arbitrator on the basis of an alleged Consultancy Agreement– Appellant denied execution of the Agreement – High Court heldthat there was an Arbitration Agreement between the parties and aSole Arbitrator was appointed to adjudicate the disputes betweenthe parties – On appeal, held: Certain emails and correspondenceDdo show that there was some dealing between the appellant and therespondent qua tender floated by South Bihar Power DistributionCompany Ltd. (SBPDCL) – However, that is not sufficient toconclude that there was concluded contract between the partiescontaining an arbitration clause – deeper consideration ofwhether an arbitration agreement exists between the parties mustEbe left to an Arbitrator who is to examine the documentary evidenceproduced before him in detail after witnesses are cross-examinedon the same – Impugned judgment in so far as it conclusively findsthat there is an Arbitration Agreement between the parties, set aside– However, the ultimate order appointing retired Judge the SoleFArbitrator is upheld – Arbitrator to first determine the preliminaryissue as to whether an Arbitration Agreement exists between theparties and decide the merits of the case only if such an agreementexists – Arbitration and Conciliation (Amendment) Act, 2015.

Arbitration and Conciliation Act, 1996 – ss.8, 11, 11(6),11(6A), 11(7), 37 – Law Commission Report – Arbitration andGConciliation (Amendment) Act, 2015 – Orders appealable underthe Act – Held: By process of judicial interpretation, Vidya Droliav. Durga Trading Corporation reported as (2021) 2 SCC 1 read the“prima facie test” into s.11(6A) so as to bring the provisions ofss.8(1) and 11(6) r/w 11(6A) on par – Considering that s.11(7) and

PRAVIN ELECTRICALS PVT. LTD. v. GALAXY INFRA ANDENGINEERING PVT. LTD.

s.37 were not amended, an anomaly arises – In light of what hasbeen decided in Vidya Drolia, the Parliament may need to have re-look at s.11(7) and s.37 so that orders made u/ss.8 and 11 arebrought on par qua appealability as well.

Words & Phrases – “existence” in s.11(6A) – Meaning of –Discussed – Arbitration and Conciliation Act, 1996.

Partly allowing the appeal, the Court

HELD: 1. The 246[th] Law Commission Report not onlydiscussed the changes that are to be made bearing in mind thedifficulties that arose earlier, but also provided for amendmentsthat were to be made to Sections 8 and 11. Section 37 which isthe appeal provision, was also sought to be amended. WhenParliament enacted the 2015 amendment pursuant to the LawCommission Report, it followed the Scheme of the LawCommission’s Report qua Section 8 and Section 37 by enactingthe words “..... unless it finds that prima facie no valid arbitrationagreement exists......” in Section 8(1) and the insertion of sub-clause (a) in Section 37(1) providing an appeal in an order madeunder Section 8, which refuses to refer parties to arbitration.However, so far as Section 11(6) and Section 11(6A) areconcerned, what was recommended by the Law Commission wasnot incorporated. Section 11(6A) merely confines examination ofthe Court to the existence of an arbitration agreement. Section11(7) was retained, by which no appeal could be filed under anorder made under Section 11(6) read with Section 11(6A), whetherthe Court’s determination led to finding that the arbitrationagreement existed or did not exist on the facts of given case.Concomitantly, no amendment was made to Section 37(1), asrecommended by the Law Commission. However, by processof judicial interpretation, Vidya Drolia has now read the “primafacie test” into Section 11(6A) so as to bring the provisions ofSections 8(1) and 11(6) r/w 11(6A) on par. Considering that Section11(7) and Section 37 have not been amended, an anomaly thusarises. Whereas in cases decided under Section 8, refusal torefer parties to arbitration is appealable under Section 37(1)(a),a similar refusal to refer parties to arbitration under Section 11(6)read with Sections 6(A) and 7 is not appealable. In the light ofwhat has been decided in Vidya Drolia, Parliament may need to

Ahave re-look at Section 11(7) and Section 37 so that ordersmade under Sections 8 and 11 are brought on par qua appealabilityas well. [Paras 19-21][1191-G-H; 1194-G; 1195-D-H; 1196-A]

Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman(2019) 8 SCC 714 : [2019] 12 SCR 123; Vidya DroliaBv. Durga Trading Corporation (2021) 2 SCC 1 – reliedon.

Vidya Drolia v. Durga Trading Corporation (2019) 20SCC 406 – referred to.

246[th]Law Commission Report – referred to.C

2.1 There are no negotiations which lead upto the 7th July,2014 Agreement (the alleged Consultancy Agreement) that areon record. Negotiations that take place take place only after 7thJuly, 2014 in which draft agreement is deliberated upon betweenthe same parties. It would stretch incredulity to state that on theDsame subject matter negotiations and draft agreement wouldbe spoken about after final signed agreement has been agreedupon between the parties. The Notary who is said to havenotarized the Agreement was not licensed to do so the same, hislicense having expired earlier, fact that is accepted even by theERespondents. Even otherwise, some of the Single Judge’sconclusions are plainly incorrect and against the record. Aninvoice was raised on M/s Process Construction and TechnicalServices Pvt. Ltd. (Process), Process making payment on 29thSeptember, 2014 and not the Appellant. Equally, the finding thata draft Consultancy Agreement was sent on 15th July, 2014Fcontaining an arbitration clause, parties being ad idem regardingsubmission of the disputes to arbitration is also plainly incorrectin view of the fact that on the same day, an email was sent back inwhich various terms were disputed, there being no concludedcontract between the parties. Also, the finding that Process wasGa sub-contractor of the Respondent, is contrary to the pleadingsbetween the parties which had ranged from Process being jointventure partner of the Appellant to Process having commonDirectors with the Appellant, and to Process thereafter beingdescribed as the lead partner. Sub-contractor-ship is not pleadedat all by the Respondent, the aforesaid arising only from writtenH

submissions made before the Single Judge. The allegation thatthe Consultancy Agreement of 7th July, 2014 had signaturethat may not be that of Mr. MGS was brushed aside stating thatan arbitration agreement need not be signed by the parties. Thatis entirely besides the point. Mr. MGS sworn to an affidavit filedbefore the High Court that the signatures appearing on the 7thJuly, 2014 agreement are not his signatures, as result of whichthe Appellant cannot be said to have entered into an agreementat allon 7th July, 2014. Again, the Single Judge’s finding thatthere exists an arbitration agreement between the parties ascontained in the “draft agreement” exchanged by email dated7th July, 2014, is incorrect for two reasons. The draft agreementsent by email was exchanged on 15th July, 2014 and not on 7thJuly, 2014. Secondly, the email in reply to the email of 15th July,2014 shows that there was no concluded contract between theparties. Also, the pleading with which the parties went to Courtwas that there was concluded contract between the parties on7th July, 2014. There was no pleading that on 15th July, 2014, adraft agreement was exchanged between the parties, as resultof which concluded contract emanated therefrom.[Paras 23-26][1196-D-G; 1197-A-G]2.2 The emails dated 22nd July, 2014 and 25th July, 2014produced here for the first time as well as certain correspondencebetween SBPDCL and the Respondent do show that there is somedealing between the Appellant and the Respondent qua tenderfloated by SBPDCL, but that is not sufficient to conclude thatthere is concluded contract between the parties, which containsan arbitration clause. Given the inconclusive nature of the findingby CFSL together with the signing of the agreement in Haryanaby parties whose registered offices are at Bombay and Bihar quaworks to be executed in Bihar; given the fact that the Notarywho signed the agreement was not authorised to do so and variousother conundrums that arise on the facts of this case, it is unsafeto conclude, one way or the other, that an arbitration agreementexists between the parties. The prima facie review spoken of inVidya Dhrolia can lead to only one conclusion on the facts of thiscase - that deeper consideration of whether an arbitrationagreement exists between the parties must be left to an Arbitrator

Awho is to examine the documentary evidence produced beforehim in detail after witnesses are cross-examined on the same.For all these reasons, the impugned judgment of the Delhi HighCourt is set aside in so far as it conclusively finds that there is anArbitration Agreement between the parties. However, theultimate order appointing retired Delhi High Court Judge as aBSole Arbitrator is upheld. The Judge will first determine as apreliminary issue as to whether an Arbitration Agreement existsbetween the parties, and go on to decide the merits of thecase only if it is first found that such an agreement exists.[Para 27][1198-B-F]C

Case Law Reference

DCIVIL APPELLATE JURISDICTION : Civil Appeal No. 825of 2021.

From the Judgment and Order dated 12.05.2020 of the High Courtof Delhi at New Delhi in Arbitration Petition No. 674 of 2018.

Shyam Divan, Sr. Adv., Saswat Pattnaik, Govind Manoharan,Hasan Murtaza, Advs. for the Appellant.E

Dhruv Mehta Sr. Adv., Ms. Minakshi Jyoti, Dharamveer Singh,Keith Varghese, Surya Hari Kamuju, Ms. Divya Roy, Advs. for therespondent.

The Judgment of the Court was delivered by

FR. F. NARIMAN, J.

1. Leave granted.

2. This appeal arises out of petition filed under Section 11(6) ofthe Arbitration and Conciliation Act, 1996, for appointment of SoleArbitrator for adjudication of disputes between the parties. TheRespondent, Galaxy Infra and Engineering Pvt. Ltd., is companyGincorporated under the provisions of the Companies Act, 1956, havingits registered office at Village Arra Gadh, Post Office Dharhara, Dist.Vaishali, P.S. Hajipur, Bihar and is in the business of providing consultancyservices. The Appellant, Pravin Electricals Pvt. Ltd., operates in key

industrial and commercial retail sectors and provides services forelectrical supplies etc.

3. On 26[th] May, 2014, an online tender was invited by ChiefEngineer, South Bihar Power Distribution Company Ltd. (hereinafterreferred to as “SBPDCL”) for appointment of implementing agenciesfor execution of Scheme, on turnkey basis, for strengthening,improvement and augmentation of distribution systems capacities of 20towns in Bihar. The Appellant submitted its technical and financial bidand was declared the L1 bidder and was awarded the work on 22[nd]September, 2014. It is the case of the Respondent that it had madesubstantial efforts under Consultancy Agreement dated 7[th] July, 2014,to facilitate the Appellant in getting the aforesaid contract for which itwas entitled to commission. It is then alleged that the Appellant sent anemail dated 15[th] July, 2014 to the Respondent with draft agreementattached for comments and confirmation. On the same day, theRespondent sent its reply stating that certain terms were not acceptable.In emails that have surfaced for the first time in this Court dated 22[nd]July, 2014 and 25[th] July, 2014, the Respondent argued that, in point offact, all differences between the parties were ironed out and FinalConsultancy Agreement was agreed upon through correspondencebetween the parties.

4. The Respondent alleged that it had raised an invoice on 27[th]September, 2014, for payment of Rs.28.09 lakhs as an advance forconsultancy charges including service tax. It is important to note that thesaid invoice was addressed to one M/s Process Construction andTechnical Services Pvt. Ltd. (hereinafter referred to as “Process”) andmakes reference to an agreement entered into between the Respondentand Process. Also, on 24[th] April, 2016, the Respondent alleged that itraised yet another invoice on the Appellant. This invoice was alsoaddressed to Process and makes reference to an agreement betweenthe Respondent and Process. Ledger accounts that were produced inthe normal course of business by the Respondent reflects transactionswith Process and not the Appellant. Finally, vide an email dated 30[th]June, 2017, the Respondent attached the final invoice to the Appellantclaiming an amount of Rs.5.54 crores under the alleged ConsultancyAgreement dated 7[th] July, 2014. This was followed up by demand-cum-legal notice dated 9[th] March, 2018, seeking payment ofRs.5,54,14,318/- from the Appellant as being due under the alleged

AConsultancy Agreement dated 7[th] July, 2014. Vide its reply dated 22[nd]March, 2018, the Appellant recorded its surprise on receiving such demandnotice and flatly denied that any agreement dated 7[th] July, 2014, wasever entered into between the parties. The Appellant further requestedthe Respondent to provide copy of the alleged Agreement dated 7[th]July, 2014 and payment details referred to in the legal notice.B

5. On 26[th] April, 2018, the Respondent invoked Article 14 of thealleged Consultancy Agreement dated 7[th] July, 2014, in which theynominated one Kameshwar Choudhary as Sole Arbitrator to adjudicatedifferences between the parties. On 3[rd] May, 2018, the Appellant deniedexecution of the Agreement dated 7[th] July, 2014 and, therefore, statedCthat the matter could not be referred to arbitration. We are informed thaton 14[th] May, 2018, the Respondent’s Advocates finally supplied copyof the alleged Agreement dated 7[th] July, 2014 to the Appellant.6. On 7[th] September, 2018, the Respondent then filed petitionunder Section 11(6) of the 1996 Act for appointment of Sole ArbitratorDon the basis of the alleged Agreement dated 7[th] July, 2014. The DelhiHigh Court vide an order dated 28[th] November, 2018, directed theRespondent to produce the original of the Consultancy Agreement dated7[th] July, 2014. The Appellant was then directed to produce Mr. M.G.Stephen, Managing Director of the Appellant, before the RegistrarE(Judicial) on 7[th] December, 2018, so that he can carry with him documentswhich bear his original signature at the contemporaneous time. TheRegistrar (Judicial) was also directed to obtain specimen signatures ofMr. M.G. Stephen. The original of the Agreement together with theaforesaid signatures of Mr. M.G. Stephen was then to be sent to theCFSL for obtaining report. The report was then received and by anForder dated 20[th] September, 2019, the High Court directed that copies ofthe report be given to the learned counsel for the parties. Finally, on 30[th]September, 2019, the learned counsel for the Appellant submitted thathe had instructions to contest the matter after which the impugnedjudgment dated 12[th] May, 2020 was passed.G

7. Vide the impugned judgment, the learned Single Judge of theDelhi High Court referred to the alleged Consultancy Agreement dated7[th] July, 2014 and the correspondence between the parties, including thecorrespondence between SBPDCL and the Respondent herein. Aftergoing through the aforesaid, the learned Single Judge then held:

“39. Learned counsel for the petitioner has drawn the attention ofthe Court to various emails which indicate that ConsultancyAgreement was executed between the parties on 07.07.2014. Inthe said agreement, the parties agreed on the percentage of feethat the petitioner would get in case the respondent succeeded ingetting the tender from SBPDCL. On 15.07.2014 the respondenthad sent an email with soft copy of the agreement suggesting acertain percentage of the consultancy fee. Subsequent emails arealso placed on record which show that payment terms were beingdiscussed between the parties. Email dated 30.06.2017 is also onrecord by which final invoice was sent by the petitioner clearlymaking reference to the Agreement dated 07.07.2014. None ofthese documents have been denied by the respondent. Learnedcounsel for the petitioner has also pointed out that the respondenteven made payments in accordance with the terms of theAgreement. As per the payment terms, Rs.25 Lakhs was payableon receipt of LOI by the respondent from SBPDCL. Admittedlyon 22.09.2014, LOI was awarded to the respondent and on thepetitioner raising an invoice for Rs.25 Lakhs on 27.09.2014,respondent actually made payment on 29.09.2014. Counsel forthe petitioner has also shown the email dated 27.09.2014 wherebythe respondent had asked the petitioner to raise the invoice on itsletterhead. These documents in my view clearly indicate that theparties had entered into an Agreement pursuant to which theparties had acted. The petitioner had assisted the respondent inthe award of the LOI and the respondent had initially madepayments in terms of the said agreement dated 07.07.2014.Learned counsel for the Petitioner is also right in submitting thaton 15.07.2014, the respondent had itself sent an email containinga Draft Consultancy Agreement which contained Article 14, whichwas the Arbitration Clause. The parties were thus ad idemregarding submission of disputes to Arbitration.

40. The fact that there was an Agreement between the parties isalso fortified by the fact that the information sent by theDepartment to the respondent regarding award of the Contract tothe respondent was also sent to the petitioner vide email dated22.09.2014. Draft letter of acceptance sent by the Department tothe petitioner through email dated 25.09.2014 was sent by thepetitioner to the respondent on the same day, by an email.

41. Learned counsel for the respondent in my view is not correctin its contention that since draft agreement was emailed by therespondent, there was no executed agreement dated 07.07.2014.From the email dated 15.07.2014, it is apparent that the respondenthad executed an Agreement prior to 15.07.2014. Petitioner hadcategorically stated in the email dated 15.07.2014 that the paymentterms in the draft agreement were different and there is nodocument on record filed by the respondent evidencing denial ofthe contents of this email.

42. In so far as the argument that the invoices were raised onPCTSPL and not on the petitioner is concerned, petitioner iscorrect in its submission that PCTSPL was only sub-contractorof the respondent. Petitioner had not raised the invoice on its ownwill. Counsel for the petitioner has pointed out the email dated24.09.2019 sent by PCTSPL to the respondent i.e. Mr. ManojPanikar to Mr. Stephen whereby PCTSPL had emailed the draftinvoice to the respondent and sought confirmation whether it couldbe sent to the petitioner and finally, the revised draft invoice wassent to the petitioner on 27.09.2019 by PCTSPL.

43. The contention of the respondent that it was PCTSPL whichhad made payments to the petitioner and this was on account oftheir own inter se business relationships has no merit. The invoiceplaced on record clearly shows that this was with respect to thecontract awarded to the respondent by the Department with whichadmittedly PCTSPL had no direct relationship. This itself isindicative of the fact that dehors the addressee of the invoices,the same were with respect to the contract given by the departmentto the respondent and for which the petitioner was consultant.

44. In so far as the contention of the respondent that theConsultancy Agreement dated 07.07.2014 did not have thesignatures of Mr. M.G. Stephen and therefore, cannot be acceptedas an agreement between the parties, is without merit. Asmentioned in the earlier part of the judgment, it is not mandatoryfor an Arbitration Agreement that it must be signed by the parties.The Supreme Court in case of Caravel Shipping Services Pvt.Ltd. vs. M/s. Premier Sea Foods (2019) 11 SCC 461, has clearlyheld as under:

“8. In addition, we may indicate that the law in this behalf, inJugal Kishore Rameshwardas v. Goolbai Hormusji, AIR 1955SC 812, is that an arbitration agreement needs to be in writingthough it need not be signed. The fact that the arbitration agreementshall be in writing is continued in the 1996 Act in Section 7(3)thereof. Section 7(4) only further adds that an arbitration agreementwould be found in the circumstances mentioned in the three sub-clauses that make up Section 7(4). This does not mean that in allcases an arbitration agreement needs to be signed. The only pre-requisite is that it be in writing, as has been pointed out in Section7(3).”

45. In my view, the documents placed on record by the petitionerclearly evidence that there exists an Arbitration Agreementbetween the parties as contained in the draft agreement exchangedby email dated 07.07.2014. The present case squarely falls withinthe ambit of Section 7(4)(b) of the Act. The inevitable result isthat the parties must be referred to Arbitration for adjudication oftheir disputes.”

Accordingly, Justice G.S. Sistani, former Judge of the Delhi HighCourt was appointed as the Sole Arbitrator to adjudicate the disputebetween the parties.

8. Shri Shyam Divan, learned Senior Advocate, appearing on behalfof the Appellant, has argued that the alleged Consultancy Agreementdated 7[th] July, 2014 is concocted document. This is clear from theCFSL report dated 29[th] September, 2019, on which he relied very heavily.This being the case, since the alleged Consultancy Agreement itself hadno existence, there was no arbitration agreement between the parties,as result of which the High Court judgment fell to the ground. He alsoargued that this is the only case of its kind in which formal signedagreement is alleged to have been entered into between the parties,after which negotiations take place and draft agreement is referred to.The very fact that negotiations have taken place after such allegedagreement shows that such alleged agreement does not in fact exist. Healso went on to argue that the agreement is notarized at Faridabad,Haryana, when the parties are from Mumbai and Bihar respectively. Hehas also produced documents to show that the so-called Notary’s licensehad expired way before notarization allegedly took place on 7[th] July,2014. He argued that once the case that is pleaded between the parties

Ais found to be incorrect, the Respondent cannot now be allowed to relyupon documents produced here for the first time to show that even apartfrom the pleaded case namely, the Consultancy Agreement dated 7[th]July, 2014, yet, an agreement is made out in correspondence betweenthe parties after the said date. He attacked the Delhi High Court judgmentarguing that the findings that were made qua invoices being raised andBpayments being made are wholly incorrect in that such invoices wereraised and payments were made only by Process under separateagreement entered into between the Respondent and Process. He alsostated that if the pleadings of this case are perused, Process has beendescribed by the Respondent as Joint Venture partner with the AppellantCin one place, then described as private company who has commondirectors with the Appellant; and then finally described as Sub-Contractoronly in the written submissions filed before Delhi High Court, which lastappellation has been accepted by the High Court completely wrongly.Even in the Counter Affidavit filed before this Court, yet another plea istaken that Process is the lead partner of the Appellant. For all theseDreasons, the learned Senior Advocate submits that the judgment underappeal ought to be set aside.

9. Shri Dhruv Mehta, learned Senior Advocate appearing on behalfof the Respondent, has taken us through all the correspondence again inorder to show that even if the Consultancy Agreement dated 7[th] July,E2014 is not relied upon, yet, an arbitration clause exists in that the draftagreement that was exchanged between the parties culminated in finalagreement on 25[th] July, 2014. In any case, if the correspondence betweenSBPDCL and the Respondent is to be seen with CCs being marked tothe Appellant, it is clear that the Respondent acted as go-between andFsuccessfully obtained the bid for the Appellant having earned itscommission thereon. He argued that the judgment under appeal doesnot require interference in that the CFSL report was also inconclusiveand that the correspondence referred to by the learned Single Judge ofthe High Court would clearly show that the dramatis personae in thiscase interacted with each other and that, but for the efforts of his client,GPravin Electricals Pvt. Ltd. would never have got the bid. He reliedupon number of judgments of this Court to buttress his submissions.

10. Having heard learned counsel for both the parties, it is importantto first set out the relevant provisions of the Arbitration and ConciliationAct, 1996:H

8. Power to refer parties to arbitration where there is anarbitration agreement. —

(1) judicial authority, before which an action is brought in amatter which is the subject of an arbitration agreement shall, if aparty to the arbitration agreement or any person claiming throughor under him, so applies not later than the date of submitting hisfirst statement on the substance of the dispute, then,notwithstanding any judgment, decree or order of the SupremeCourt or any Court, refer the parties to arbitration unless it findsthat prima facie no valid arbitration agreement exists.

11. Appointment of arbitrators. —

xxxx

(6) Where, under an appointment procedure agreed upon by theparties, —

(a) party fails to act as required under that procedure; or

(b) the parties, or the two appointed arbitrators, fail to reachan agreement expected of them under that procedure; or

(c) person, including an institution, fails to perform any functionentrusted to him or it under that procedure,

party may request the Supreme Court or, as the case may be,the High Court or any person or institution designated by suchCourt to take the necessary measure, unless the agreement onthe appointment procedure provides other means for securing theappointment.

(6A) The Supreme Court or, as the case may be, the High Court,while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment,decree or order of any Court, confine to the examination of theexistence of an arbitration agreement.

xxxx

(7) decision on matter entrusted by sub-section (4) or sub-section (5) or sub-section (6) to 3 the Supreme Court or, as thecase may be, the High Court or the person or institution designatedby such Court is final and no appeal including Letters Patent Appealshall lie against such decision.

A11. Sections 8 and 11 were amended pursuant to detailed LawCommission Report being the 246[th] Law Commission Report onArbitration. The history of the law prior to 2015 is set out in the aforesaidReport and the changes made therein are reflected by this Court in itsjudgment in Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman,(2019) 8 SCC 714 as under:B

“9. The 246[th] Law Commission Report dealt with some of thesejudgments and felt that at the stage of Section 11(6) application,only “existence” of an arbitration agreement ought to be lookedat and not other preliminary issues. In recent judgment of thisCourt, namely, Garware Wall Ropes Ltd. v. Coastal MarineConstructions & Engg. Ltd., (2019) 9 SCC 209, this Courtadverted to the said Law Commission Report and held:

“8. The case law under Section 11(6) of the Arbitration Act, as itstood prior to the Amendment Act, 2015, has had chequeredhistory.

9. In Konkan Railway Corpn. Ltd. v. Mehul Construction Co.,(2000) 7 SCC 201 (Konkan Railway 1), it was held that the powersof the Chief Justice under Section 11(6) of the 1996 Act areadministrative in nature, and that the Chief Justice or his designatedoes not act as judicial authority while appointing an arbitrator.EThe same view was reiterated in Konkan Railway Corpn. Ltd.v. Rani Construction (P) Ltd., (2002) 2 SCC 388 (KonkanRailway 2).

10. However, in SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC618, seven-Judge Bench overruled this view and held that theFpower to appoint an arbitrator under Section 11 is judicial and notadministrative. The conclusions of the seven-Judge Bench weresummarised in para 47 of the aforesaid judgment. We are concerneddirectly with sub-paras (i), (iv) and (xii), which read as follows:(SCC pp. 663-64)

‘(i) The power exercised by the Chief Justice of the High Courtor the Chief Justice of India under Section 11(6) of the Act isnot an administrative power. It is judicial power.***

(iv) The Chief Justice or the designated Judge will have theright to decide the preliminary aspects as indicated in the earlier

part of this judgment. These will be his own jurisdiction toentertain the request, the existence of valid arbitrationagreement, the existence or otherwise of live claim, theexistence of the condition for the exercise of his power and onthe qualifications of the arbitrator or arbitrators. The ChiefJustice or the designated Judge would be entitled to seek theopinion of an institution in the matter of nominating an arbitratorqualified in terms of Section 11(8) of the Act if the need arisesbut the order appointing the arbitrator could only be that of theChief Justice or the designated Judge.

(xii) The decision in Konkan Railway Corpn. Ltd. v. RaniConstruction (P) Ltd., (2002) 2 SCC 388 is overruled.’

11. This position was further clarified in National Insurance Co.Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 as follows:(SCC p. 283, para 22)

‘22. Where the intervention of the court is sought forappointment of an Arbitral Tribunal under Section 11, the dutyof the Chief Justice or his designate is defined in SBP & Co.(supra)This Court identified and segregated the preliminaryissues that may arise for consideration in an application underSection 11 of the Act into three categories, that is, (i) issueswhich the Chief Justice or his designate is bound to decide; (ii)issues which he can also decide, that is, issues which he maychoose to decide; and (iii) issues which should be left to theArbitral Tribunal to decide.

22.1. The issues (first category) which the Chief Justice/hisdesignate will have to decide are:

(a)Whether the party making the application hasapproached the appropriate High Court.

(b)Whether there is an arbitration agreement and whetherthe party who has applied under Section 11 of the Act,is party to such an agreement.

22.2. The issues (second category) which the Chief Justice/hisdesignate may choose to decide (or leave them to the decision ofthe Arbitral Tribunal) are:

(a)Whether the claim is dead (long-barred) claim or alive claim.

(b)Whether the parties have concluded the contract/transaction by recording satisfaction of their mutualrights and obligation or by receiving the final paymentwithout objection.

22.3. The issues (third category) which the Chief Justice/hisdesignate should leave exclusively to the Arbitral Tribunal are:

(i)Whether claim made falls within the arbitrationclause (as for example, matter which is reservedfor final decision of departmental authority andexcepted or excluded from arbitration).

(ii)Merits or any claim involved in the arbitration.’

12. As result of these judgments, the door was wide open forthe Chief Justice or his designate to decide large number ofpreliminary aspects which could otherwise have been left to bedecided by the arbitrator under Section 16 of the 1996 Act. As aresult, the Law Commission of India, by its Report No. 246submitted in August 2014, suggested that various sweepingchanges be made in the 1996 Act. Insofar as SBP & Co. (supra)and Boghara Polyfab (supra) are concerned, the LawCommission examined the matter and recommended the additionof new sub-section, namely, sub-section (6-A) in Section 11. Inso doing, the Law Commission recommendations which arerelevant and which led to the introduction of Section 11(6-A) areas follows:

‘28. The Act recognises situations where the intervention ofthe Court is envisaged at the pre-arbitral stage i.e. prior to theconstitution of the Arbitral Tribunal, which includes Sections 8,9, 11 in the case of Part I arbitrations and Section 45 in thecase of Part II arbitrations. Sections 8, 45 and also Section 11relating to “reference to arbitration” and “appointment of theTribunal”, directly affect the constitution of the Tribunal andfunctioning of the arbitral proceedings. Therefore, theiroperation has direct and significant impact on the “conduct”of arbitrations. Section 9, being solely for the purpose of securinginterim relief, although having the potential to affect the rights

of parties, does not affect the “conduct” of the arbitration inthe same way as these other provisions. It is in this context theCommission has examined and deliberated the working of theseprovisions and proposed certain amendments.

29. The Supreme Court has had occasion to deliberate uponthe scope and nature of permissible pre-arbitral judicialintervention, especially in the context of Section 11 of the Act.Unfortunately, however, the question before the Supreme Courtwas framed in terms of whether such power is “judicial”or an “administrative” power — which obfuscates the realissue underlying such nomenclature/description as to

- the scope of such powers — i.e. the scope of argumentswhich court (Chief Justice) will consider while decidingwhether to appoint an arbitrator or not — i.e. whether thearbitration agreement exists, whether it is null and void, whetherit is voidable, etc.; and which of these it should leave for decisionof the Arbitral Tribunal.

- the nature of such intervention — i.e. would the court (ChiefJustice) consider the issues upon detailed trial and whetherthe same would be decided finally or be left for determinationof the Arbitral Tribunal.

30. After series of cases culminating in the decision in SBP& Co. v. Patel Engg. Ltd. (supra), the Supreme Court heldthat the power to appoint an arbitrator under Section 11 is a“judicial” power. The underlying issues in this judgment, relatingto the scope of intervention, were subsequently clarified byRaveendran, J. in National Insurance Co. Ltd. v. BogharaPolyfab (P) Ltd. (supra), where the Supreme Court laid downas follows: (SCC p. 283, para 22)

‘22.1. The issues (first category) which Chief Justice/hisdesignate will have to decide are:

(a) Whether the party making the application hasapproached the appropriate High Court?

(b) Whether there is an arbitration agreement and whetherthe party who has applied under Section 11 of the Act, is aparty to such an agreement?

22.2. The issues (second category) which the Chief Justice/his designate may choose to decide are:

(a) Whether the claim is dead (long barred) claim or alive claim?

(b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rightsand obligation or by receiving the final payment withoutobjection?

22.3. The issues (third category) which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunalare:

(a) Whether claim made falls within the arbitration clause(as for example, matter which is reserved for final decisionof departmental authority and excepted or excluded fromarbitration)?

(b) Merits of any claim involved in the arbitration.”

31. The Commission is of the view that, in this context, the sametest regarding scope and nature of judicial intervention, asapplicable in the context of Section 11, should also apply to Sections8 and 45 of the Act — since the scope and nature of judicialintervention should not change upon whether party (intending todefeat the arbitration agreement) refuses to appoint an arbitratorin terms of the arbitration agreement, or moves proceeding beforea judicial authority in the face of such an arbitration agreement.

32. In relation to the nature of intervention, the exposition of thelaw is to be found in the decision of the Supreme Court in Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd., (2005) 7 SCC234, (in the context of Section 45 of the Act), where the SupremeCourt has ruled in favour of looking at the issues/controversy onlyprima facie.

33. It is in this context, the Commission has recommendedamendments to Sections 8 and 11 of the Arbitration and ConciliationAct, 1996. The scope of the judicial intervention is only restrictedto situations where the court/judicial authority finds that thearbitration agreement does not exist or is null and void. Insofar asthe nature of intervention is concerned, it is recommended that in

the event the court/judicial authority is prima facie satisfied againstthe argument challenging the arbitration agreement, it shall appointthe arbitrator and/or refer the parties to arbitration, as the casemay be. The amendment envisages that the judicial authority shallnot refer the parties to arbitration only if it finds that there doesnot exist an arbitration agreement or that it is null and void. If thejudicial authority is of the opinion that prima facie the arbitrationagreement exists, then it shall refer the dispute to arbitration, andleave the existence of the arbitration agreement to be finallydetermined by the Arbitral Tribunal. However, if the judicialauthority concludes that the agreement does not exist, then theconclusion will be final and not prima facie. The amendment alsoenvisages that there shall be conclusive determination as towhether the arbitration agreement is null and void. In the eventthat the judicial authority refers the dispute to arbitration and/orappoints an arbitrator, under Sections 8 and 11 respectively, sucha decision will be final and non-appealable. An appeal can bemaintained under Section 37 only in the event of refusal to referparties to arbitration, or refusal to appoint an arbitrator.’13. Pursuant to the Law Commission recommendations, Section11(6-A) was introduced first by Ordinance and then by theAmendment Act, 2015. The Statement of Objects and Reasonswhich were appended to the Arbitration and Conciliation(Amendment) Bill, 2015 which introduced the Amendment Act,2015 read as follows:

‘Statement of Objects and Reasons

6. It is proposed to introduce the Arbitration and Conciliation(Amendment) Bill, 2015, to replace the Arbitration andConciliation (Amendment) Ordinance, 2015, which inter alia,provides for the following, namely—

(i)to amend the definition of “Court” to provide that in thecase of international commercial arbitrations, the Courtshould be the High Court;

(ii)to ensure that an Indian Court can exercise jurisdictionto grant interim measures, etc., even where the seat ofthe arbitration is outside India;

(iii)an application for appointment of an arbitrator shall bedisposed of by the High Court or Supreme Court, as thecase may be, as expeditiously as possible and anendeavour should be made to dispose of the matter withina period of sixty days;

(iv)to provide that while considering any application forappointment of arbitrator, the High Court or the SupremeCourt shall examine the existence of prima faciearbitration agreement and not other issues;

(v)to provide that the Arbitral Tribunal shall make its awardwithin period of twelve months from the date it entersupon the reference and that the parties may, however,extend such period up to six months, beyond which periodany extension can only be granted by the Court, onsufficient cause;

(vi)to provide that model fee schedule on the basis ofwhich High Courts may frame rules for the purpose ofdetermination of fees of Arbitral Tribunal, where HighCourt appoints arbitrator in terms of Section 11 of theAct;

(vii)to provide that the parties to dispute may at any stageagree in writing that their dispute be resolved throughfast-track procedure and the award in such cases shallbe made within period of six months;

(viii) to provide for neutrality of arbitrators, when person isFapproached in connection with possible appointment asan arbitrator;

(ix)to provide that application to challenge the award is tobe disposed of by the Court within one year.

7. The amendments proposed in the Bill will ensure thatarbitration process becomes more user-friendly, cost effectiveand leads to expeditious disposal of cases.’

14. reading of the Law Commission Report, together with theStatement of Objects and Reasons, shows that the LawCommission felt that the judgments in Patel Engg. Ltd.,(supra)and Boghara Polyfab (supra) required relook, as result of

which, so far as Section 11 is concerned, the Supreme Court or,as the case may be, the High Court, while considering anyapplication under Sections 11(4) to 11(6) is to confine itself to theexamination of the existence of an arbitration agreement and leaveall other preliminary issues to be decided by the arbitrator.”

12. The need for reference to any other case law is obviated by arecent Three-Judge Bench judgment in Vidya Drolia v. Durga TradingCorporation, (2021) 2 SCC 1. This Three-Judge Bench judgment aroseout of reference made to 3 learned Judges in Vidya Drolia v. DurgaTrading Corporation, (2019) 20 SCC 406. Sanjiv Khanna, J. speakingfor the Court set out the question that arose before the Court as follows:

“1. This judgment decides the reference to three Judges madevide order dated 28-2-2019 in Vidya Drolia v. Durga TradingCorpn., (2019) 20 SCC 406, as it doubts the legal ratio expressedin Himangni Enterprises v. Kamaljeet Singh Ahluwalia, (2017)10 SCC 706 that landlord-tenant disputes governed by theprovisions of the Transfer of Property Act, 1882, are not arbitrableas this would be contrary to public policy.

2. deeper consideration of the order of reference reveals thatthe issues required to be answered relate to two aspects that aredistinct and yet interconnected, namely:

2.1. (i) Meaning of non-arbitrability and when the subject-matterof the dispute is not capable of being resolved through arbitration.

2.2. (ii) The conundrum — “who decides” — whether the courtat the reference stage or the Arbitral Tribunal in the arbitrationproceedings would decide the question of non-arbitrability.

2.3. The second aspect also relates to the scope and ambit ofjurisdiction of the court at the referral stage when an objection ofnon-arbitrability is raised to an application under Section 8 or 11of the Arbitration and Conciliation Act, 1996 (for short “theArbitration Act”).

13. The Bench then went into the Law Commission’s 246[th] Reportas follows:

124. In order to appreciate the effect of the amendments madeby Act 3 of 2016, it would be appropriate to refer to the LawCommission’s 246th Report which had given reasons for

amendments to Sections 8 and 11 of the Arbitration Act, includinginsertion of sub-section (6-A) to Section 11. The said reasonsread as under:

“24. Two further sets of amendments have been proposed inthis context. First, it is observed that lot of time is spent forappointment of arbitrators at the very threshold of arbitrationproceedings as applications under Section 11 are kept pendingfor many years. In this context, the Commission has proposeda few amendments. The Commission has proposed changingthe existing scheme of the power of appointment being vestedin the “Chief Justice” to the “High Court” and the “SupremeCourt” and has expressly clarified that delegation of the powerof “appointment” (as opposed to finding regarding theexistence/nullity of the arbitration agreement) shall not beregarded as judicial act. This would rationalise the law andprovide greater incentive for the High Court and/or SupremeCourt to delegate the power of appointment (being non-judicialact) to specialised, external persons or institutions. TheCommission has further recommended an amendment toSection 11(7) so that decisions of the High Court (regardingexistence/nullity of the arbitration agreement) are final wherean arbitrator has been appointed, and as such are non-appealable. The Commission further proposes the addition ofSection 11(13) which requires the Court to make an endeavourto dispose of the matter within sixty days from the service ofnotice on the opposite party.

The Law Commission’s Report specifically refers to the decisionof this Court in Shin-Etsu Chemical Co. Ltd. v. Aksh OptifibreLtd., (2005) 7 SCC 234, decision relating to transnationalarbitration covered by the New York Convention.

14. Dealing with “prima facie” examination under Section 8, asamended, the Court then held:

134. Prima facie examination is not full review but primary firstreview to weed out manifestly and ex facie non-existent and invalidarbitration agreements and non-arbitrable disputes. The prima faciereview at the reference stage is to cut the deadwood and trim off

the side branches in straightforward cases where dismissal isbarefaced and pellucid and when on the facts and law the litigationmust stop at the first stage. Only when the court is certain that novalid arbitration agreement exists or the disputes/subject-matterare not arbitrable, the application under Section 8 would be rejected.At this stage, the court should not get lost in thickets and decidedebatable questions of facts. Referral proceedings are preliminaryand summary and not mini trial. This necessarily reflects on thenature of the jurisdiction exercised by the court and in this context,the observations of B.N. Srikrishna, J. of “plainly arguable” casein Shin-Etsu Chemical Co. Ltd. are of importance and relevance.Similar views are expressed by this Court in Vimal KishorShah v. Jayesh Dinesh Shah, (2016) 8 SCC wherein the testapplied at the pre-arbitration stage was whether there is “goodarguable case” for the existence of an arbitration agreement.

15. The parameters of review under Sections 8 and 11 were thenlaid down thus:

138. In the Indian context, we would respectfully adopt the threecategories in Boghara Polyfab (P) Ltd. The first category ofissues, namely, whether the party has approached the appropriateHigh Court, whether there is an arbitration agreement and whetherthe party who has applied for reference is party to such agreementwould be subject to more thorough examination in comparison tothe second and third categories/issues which are presumptively,save in exceptional cases, for the arbitrator to decide. In the firstcategory, we would add and include the question or issue relatingto whether the cause of action relates to action in personam orrem; whether the subject-matter of the dispute affects third-partyrights, have erga omnes effect, requires centralised adjudication;whether the subject-matter relates to inalienable sovereign andpublic interest functions of the State; and whether the subject-matter of dispute is expressly or by necessary implication non-arbitrable as per mandatory statute(s). Such questions arise rarelyand, when they arise, are on most occasions questions of law. Onthe other hand, issues relating to contract formation, existence,validity and non-arbitrability would be connected and intertwinedwith the issues underlying the merits of the respective disputes/claims. They would be factual and disputed and for the ArbitralTribunal to decide.

A139. We would not like to be too prescriptive, albeit observe thatthe court may for legitimate reasons, to prevent wastage of publicand private resources, can exercise judicial discretion to conductan intense yet summary prima facie review while remainingconscious that it is to assist the arbitration procedure and not usurpjurisdiction of the Arbitral Tribunal. Undertaking detailed fullBreview or long-drawn review at the referral stage would obstructand cause delay undermining the integrity and efficacy ofarbitration as dispute resolution mechanism. Conversely, if thecourt becomes too reluctant to intervene, it may undermineeffectiveness of both the arbitration and the court. There areCcertain cases where the prima facie examination may require adeeper consideration. The court’s challenge is to find the rightamount of and the context when it would examine the prima faciecase or exercise restraint. The legal order needs right balancebetween avoiding arbitration obstructing tactics at referral stageand protecting parties from being forced to arbitrate when theDmatter is clearly non-arbitrable. [Ozlem Susler, “The EnglishApproach to Competence-Competence” Pepperdine DisputeResolution Law Journal, 2013, Vol. 13.]

140. Accordingly, when it appears that prima facie review wouldbe inconclusive, or on consideration inadequate as it requiresEdetailed examination, the matter should be left for finaldetermination by the Arbitral Tribunal selected by the parties byconsent. The underlying rationale being not to delay or defer andto discourage parties from using referral proceeding as ruse todelay and obstruct. In such cases full review by the courts atFthis stage would encroach on the jurisdiction of the Arbitral Tribunaland violate the legislative scheme allocating jurisdiction betweenthe courts and the Arbitral Tribunal. Centralisation of litigationwith the Arbitral Tribunal as the primary and first adjudicator isbeneficent as it helps in quicker and efficient resolution of disputes.

G16. The Court then examined the meaning of the expression“existence” which occurs in Section 11(6A) and summed up its discussionas follows:

146. We now proceed to examine the question, whether the word“existence” in Section 11 merely refers to contract formation(whether there is an arbitration agreement) and excludes the

question of enforcement (validity) and therefore the latter fallsoutside the jurisdiction of the court at the referral stage. Onjurisprudentially and textualism it is possible to differentiatebetween existence of an arbitration agreement and validity of anarbitration agreement. Such interpretation can draw support fromthe plain meaning of the word “existence”. However, it is equallypossible, jurisprudentially and on contextualism, to hold that anagreement has no existence if it is not enforceable and not binding.Existence of an arbitration agreement presupposes validagreement which would be enforced by the court by relegatingthe parties to arbitration. Legalistic and plain meaning interpretationwould be contrary to the contextual background including thedefinition clause and would result in unpalatable consequences. Areasonable and just interpretation of “existence” requiresunderstanding the context, the purpose and the relevant legal normsapplicable for binding and enforceable arbitration agreement.An agreement evidenced in writing has no meaning unless theparties can be compelled to adhere and abide by the terms. Aparty cannot sue and claim rights based on an unenforceabledocument. Thus, there are good reasons to hold that an arbitrationagreement exists only when it is valid and legal. void andunenforceable understanding is no agreement to do anything.Existence of an arbitration agreement means an arbitrationagreement that meets and satisfies the statutory requirements ofboth the Arbitration Act and the Contract Act and when it isenforceable in law.

147. We would proceed to elaborate and give further reasons:147.1. In Garware Wall Ropes Ltd. v. Coastal MarineConstructions & Engg. Ltd., (2019) 9 SCC 209, this Court hadexamined the question of stamp duty in an underlying contractwith an arbitration clause and in the context had drawn distinctionbetween the first and second part of Section 7(2) of the ArbitrationAct, albeit the observations made and quoted above with referenceto “existence” and “validity” of the arbitration agreement beingapposite and extremely important, we would repeat the same byreproducing para 29 thereof: (SCC p. 238)

“29. This judgment in United India Insurance Co. Ltd. v.Hyundai Engg. & Construction Co. Ltd., (2018) 17 SCC607 is important in that what was specifically under

consideration was an arbitration clause which would getactivated only if an insurer admits or accepts liability. Since onfacts it was found that the insurer repudiated the claim, thoughan arbitration clause did “exist”, so to speak, in the policy, itwould not exist in law, as was held in that judgment, when oneimportant fact is introduced, namely, that the insurer has notadmitted or accepted liability. Likewise, in the facts of thepresent case, it is clear that the arbitration clause that iscontained in the sub-contract would not “exist” as matter oflaw until the sub-contract is duly stamped, as has been held byus above. The argument that Section 11(6-A) deals with“existence”, as opposed to Section 8, Section 16 and Section45, which deal with “validity” of an arbitration agreement isanswered by this Court’s understanding of the expression“existence” in Hyundai Engg. case, as followed by us.”

Existence and validity are intertwined, and arbitration agreementDdoes not exist if it is illegal or does not satisfy mandatory legalrequirements. Invalid agreement is no agreement.

147.2. The court at the reference stage exercises judicial powers.“Examination”, as an ordinary expression in common parlance,refers to an act of looking or considering something carefully inorder to discover something (as per Cambridge Dictionary). Itrequires the person to inspect closely, to test the condition of, or toinquire into carefully (as per Merriam-Webster Dictionary). Itwould be rather odd for the court to hold and say that the arbitrationagreement exists, though ex facie and manifestly the arbitrationagreement is invalid in law and the dispute in question is non-arbitrable. The court is not powerless and would not act beyondjurisdiction, if it rejects an application for reference, when thearbitration clause is admittedly or without doubt is with minor,lunatic or the only claim seeks probate of will.

147.3. Most scholars and jurists accept and agree that the existenceand validity of an arbitration agreement are the same. Even StavrosBrekoulakis accepts that validity, in terms of substantive and formalvalidity, are questions of contract and hence for the court toexamine.

147.4. Most jurisdictions accept and require prima facie reviewby the court on non-arbitrability aspects at the referral stage.

147.5. Sections 8 and 11 of the Arbitration Act are complementaryprovisions as was held in Patel Engg. Ltd. The object and purposebehind the two provisions is identical to compel and force partiesto abide by their contractual understanding. This being so, the twoprovisions should be read as laying down similar standard and notas laying down different and separate parameters. Section 11 doesnot prescribe any standard of judicial review by the court fordetermining whether an arbitration agreement is in existence.Section 8 states that the judicial review at the stage of referenceis prima facie and not final. Prima facie standard equally applieswhen the power of judicial review is exercised by the court underSection 11 of the Arbitration Act. Therefore, we can read themandate of valid arbitration agreement in Section 8 into mandateof Section 11, that is, “existence of an arbitration agreement”.

147.6. Exercise of power of prima facie judicial review of existenceas including validity is justified as court is the first forum thatexamines and decides the request for the referral. Absolute “handsoff” approach would be counterproductive and harm arbitration,as an alternative dispute resolution mechanism. Limited, yeteffective intervention is acceptable as it does not obstruct buteffectuates arbitration.

147.7. Exercise of the limited prima facie review does not in anyway interfere with the principle of competence-competence andseparation as to obstruct arbitration proceedings but ensures thatvexatious and frivolous matters get over at the initial stage.

147.8. Exercise of prima facie power of judicial review as to thevalidity of the arbitration agreement would save costs and checkharassment of objecting parties when there is clearly no justificationand good reason not to accept plea of non-arbitrability. In SubrataRoy Sahara v. Union of India, (2014) 8 SCC 470, this Court hasobserved: (SCC p. 642, para 191)

“191. The Indian judicial system is grossly afflicted with frivolouslitigation. Ways and means need to be evolved to deter litigantsfrom their compulsive obsession towards senseless and ill-considered claims. One needs to keep in mind that in the processof litigation, there is an innocent sufferer on the other side ofevery irresponsible and senseless claim. He suffers long-drawnanxious periods of nervousness and restlessness, whilst the

litigation is pending without any fault on his part. He pays forthe litigation from out of his savings (or out of his borrowings)worrying that the other side may trick him into defeat for nofault of his. He spends invaluable time briefing counsel andpreparing them for his claim. Time which he should have spentat work, or with his family, is lost, for no fault of his. Should alitigant not be compensated for what he has lost for no fault?The suggestion to the legislature is that litigant who hassucceeded must be compensated by the one who has lost. Thesuggestion to the legislature is to formulate mechanism thatanyone who initiates and continues litigation senselessly paysfor the same. It is suggested that the legislature should considerthe introduction of “Code of Compulsory Costs”.”

147.9. Even in Duro Felguera, S.A. v. Gangavaram Port Ltd.,(2017) 9 SCC 729, Kurian Joseph, J., in para 52, had referred toSection 7(5) and thereafter in para 53 referred to judgment ofthis Court in M.R. Engineers & Contractors (P) Ltd. v. SomDatt Builders Ltd., (2009) 7 SCC 696 to observe that the analysisin the said case supports the final conclusion that the memorandumof understanding in the said case did not incorporate an arbitrationclause. Thereafter, reference was specifically made to SBP &Co. v. Patel Engg. Ltd., (2005) 8 SCC 618 and NationalInsurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC267 to observe that the legislative policy is essential to minimisecourt’s interference at the pre-arbitral stage and this was theintention of sub-section (6) to Section 11 of the Arbitration Act.Para 48 in Duro Felguera specifically states that the resolution

has to exist in the arbitration agreement, and it is for the court tosee if the agreement contains clause which provides for arbitrationof disputes which have arisen between the parties. Para 59 ismore restrictive and requires the court to see whether an arbitrationagreement exists — nothing more, nothing less. Read with theother findings, it would be appropriate to read the two paragraphsas laying down the legal ratio that the court is required to see ifthe underlying contract contains an arbitration clause for arbitrationof the disputes which have arisen between the parties — nothingmore, nothing less. Reference to decisions in Patel Engg. Ltd.and Boghara Polyfab (P) Ltd. was to highlight that at thereference stage, post the amendments vide Act 3 of 2016, the

court would not go into and finally decide different aspects thatwere highlighted in the two decisions.

147.10. In addition to Garware Wall Ropes Ltd. case, this Courtin Narbheram Power & Steel (P) Ltd. [Oriental Insurance Co.Ltd. v. Narbheram Power & Steel (P) Ltd., (2018) 6 SCC 534]and Hyundai Engg. & Construction Co. Ltd. [United IndiaInsurance Co. Ltd. v. Hyundai Engg. & Construction Co. Ltd.,(2018) 17 SCC 607] , both decisions of three Judges, has rejectedthe application for reference in the insurance contracts holdingthat the claim was beyond and not covered by the arbitrationagreement. The Court felt that the legal position was beyond doubtas the scope of the arbitration clause was fully covered by thedictum in Vulcan Insurance Co. Ltd. [Vulcan Insurance Co. Ltd.v. Maharaj Singh, (1976) 1 SCC 943] Similarly, in PSA MumbaiInvestments Pte. Ltd. [PSA Mumbai Investments Pte. Ltd. v.Jawaharlal Nehru Port Trust, (2018) 10 SCC 525] , this Court atthe referral stage came to the conclusion that the arbitration clausewould not be applicable and govern the disputes. Accordingly, thereference to the Arbitral Tribunal was set aside leaving therespondent to pursue its claim before an appropriate forum.147.11. The interpretation appropriately balances the allocationof the decision-making authority between the court at the referralstage and the arbitrators’ primary jurisdiction to decide disputeson merits. The court as the judicial forum of the first instance canexercise prima facie test jurisdiction to screen and knock downex facie meritless, frivolous and dishonest litigation. Limitedjurisdiction of the courts ensures expeditious, alacritous andefficient disposal when required at the referral stage.

17. The Bench finally concluded:

153. Accordingly, we hold that the expression “existence of anarbitration agreement” in Section 11 of the Arbitration Act, wouldinclude aspect of validity of an arbitration agreement, albeit thecourt at the referral stage would apply the prima facie test on thebasis of principles set out in this judgment. In cases of debatableand disputable facts, and good reasonable arguable case, etc., thecourt would force the parties to abide by the arbitration agreementas the Arbitral Tribunal has primary jurisdiction and authority to

decide the disputes including the question of jurisdiction and non-arbitrability.

154. Discussion under the heading “Who Decides Arbitrability?”can be crystallised as under:

154.1. Ratio of the decision in Patel Engg. Ltd. on the scope ofjudicial review by the court while deciding an application underSections 8 or 11 of the Arbitration Act, post the amendments byAct 3 of 2016 (with retrospective effect from 23-10-2015) andeven post the amendments vide Act 33 of 2019 (with effect from9-8-2019), is no longer applicable.

154.2. Scope of judicial review and jurisdiction of the court underSections 8 and 11 of the Arbitration Act is identical but extremelylimited and restricted.

154.3. The general rule and principle, in view of the legislativemandate clear from Act 3 of 2016 and Act 33 of 2019, and theprinciple of severability and competence-competence, is that theArbitral Tribunal is the preferred first authority to determine anddecide all questions of non-arbitrability. The court has beenconferred power of “second look” on aspects of non-arbitrabilitypost the award in terms of sub-clauses (i), (ii) or (iv) of Section34(2)(a) or sub-clause (i) of Section 34(2)(b) of the ArbitrationAct.

154.4. Rarely as demurrer the court may interfere at Section 8or 11 stage when it is manifestly and ex facie certain that thearbitration agreement is non-existent, invalid or the disputes arenon-arbitrable, though the nature and facet of non-arbitrabilitywould, to some extent, determine the level and nature of judicialscrutiny. The restricted and limited review is to check and protectparties from being forced to arbitrate when the matter isdemonstrably “non-arbitrable” and to cut off the deadwood. Thecourt by default would refer the matter when contentions relatingto non-arbitrability are plainly arguable; when consideration insummary proceedings would be insufficient and inconclusive; whenfacts are contested; when the party opposing arbitration adoptsdelaying tactics or impairs conduct of arbitration proceedings. Thisis not the stage for the court to enter into mini trial or elaboratereview so as to usurp the jurisdiction of the Arbitral Tribunal but

to affirm and uphold integrity and efficacy of arbitration as analternative dispute resolution mechanism.

155. Reference is, accordingly, answered.

18. Ramana, J. in separate concurring opinion, after referring tothe case law, summed up his conclusions as follows:

244. Before we part, the conclusions reached, with respect toQuestion 1, are:

244.1. Sections 8 and 11 of the Act have the same ambit withrespect to judicial interference.

244.2. Usually, subject-matter arbitrability cannot be decided atthe stage of Section 8 or 11 of the Act, unless it is clear case ofdeadwood.

244.3. The court, under Sections 8 and 11, has to refer matter toarbitration or to appoint an arbitrator, as the case may be, unless aparty has established prima facie (summary findings) case ofnon-existence of valid arbitration agreement, by summarilyportraying strong case that he is entitled to such finding.

244.4. The court should refer matter if the validity of thearbitration agreement cannot be determined on prima facie basis,as laid down above i.e. “when in doubt, do refer”.

244.5. The scope of the court to examine the prima facie validityof an arbitration agreement includes only:

244.5.1. Whether the arbitration agreement was in writing? or

244.5.2. Whether the arbitration agreement was contained inexchange of letters, telecommunication, etc.?

244.5.3. Whether the core contractual ingredients qua thearbitration agreement were fulfilled?

244.5.4. On rare occasions, whether the subject-matter of disputeis arbitrable?

19. The 246[th] Law Commission Report not only discussed thechanges that are to be made bearing in mind the difficulties that aroseearlier, but also provided for amendments that were to be made toSections 8 and 11. This was provided as follows:

A“Amendment of Section 8

5. In section 8 of the Act,

(i) In sub-section (1), after the words “substance of the dispute,refer” add “to arbitration, such of” and after the words “the partiesto” add “the action who are parties to the” and after the word“arbitration” add the word “agreement”.

(ii) after sub-section (1), add “Provided that no such referenceshall be made only in cases where –

(i) the parties to the action who are not parties to the arbitrationagreement, are necessary parties to the action;

(ii) the judicial authority finds that the arbitration agreementdoes not exist or is null and void.

Explanation 1: If the judicial authority is prima facie satisfied aboutthe existence of an arbitration agreement, it shall refer the partiesto arbitration and leave the final determination of the existence ofthe arbitration agreement to the arbitral tribunal in accordancewith section 16, which shall decide the same as preliminaryissue;

Explanation 2: Any pleading filed in relation to any interimapplication which has been filed before the judicial authority shallnot be treated to be statement on the substance of the disputefor the purpose of this section.”

[NOTE: The words “such of the parties… to the arbitrationagreement” and proviso (i) of the amendment have been proposedin the context of the decision of the Supreme Court in SukanyaHoldings Pvt. Ltd. v. Jayesh H. Pandya and Anr., (2003) 5SCC 531, – in cases where all the parties to the dispute are notparties to the arbitration agreement, the reference is to be rejectedonly where such parties are necessary parties to the action – andnot if they are only proper parties, or are otherwise legal strangersto the action and have been added only to circumvent the arbitrationagreement. Proviso (ii) of the amendment contemplates two-step process to be adopted by judicial authority when consideringan application seeking the reference of pending action toarbitration. The amendment envisages that the judicial authorityshall not refer the parties to arbitration only if it finds that there

does not exist an arbitration agreement or that it is null and void.If the judicial authority is of the opinion that prima facie thearbitration agreement exists, then it shall refer the dispute toarbitration, and leave the existence of the arbitration agreementto be finally determined by the arbitral tribunal. However, if thejudicial authority concludes that the agreement does not exist, thenthe conclusion will be 44 final and not prima facie. The amendmentalso envisages that there shall be conclusive determination as towhether the arbitration agreement is null and void.]”

(iii) In sub-section (2), after the words “duly certified copy thereof”add “or copy accompanied by an affidavit calling upon the otherparty to produce the original arbitration agreement or duly certifiedcopy thereof in circumstance where the original arbitrationagreement or duly certified copy is retained only by the otherparty.”

xxx

Amendment of Section 11

7. In section 11,

(i) In sub-section (4), sub-clause (b), after the words “by the”delete “Chief Justice” and add words “High Court” and after thewords “designated by” delete the word “him” and add the word“it”.

(ii) In sub-section (5), after the words “by the” delete “ChiefJustice” and add words “High Court” and after the words“designated by” delete the word “him” and add the word “it”.

(iii) In sub-section (6), sub-clause (c), after the words “may requestthe” delete “Chief Justice” and add words “High Court” and afterthe words “designated by” delete the word “him” and add theword “it”.

(iv) after sub-section (6), insert sub-section “(6A) An appointmentby the High Court or the person or institution designated by itunder sub-section (4) or sub-section (5) or sub-section (6) shallnot be made only if the High Court finds that the arbitrationagreement does not exist or is null and void,

Explanation 1: If the High Court is prima facie satisfied regardingthe existence of an arbitration agreement, it shall refer the parties

to arbitration and leave the final determination of the existence ofthe arbitration agreement to the arbitral tribunal in accordancewith section 16, which shall decide the same as preliminaryissue.

Explanation 2: For the removal of any doubt, it is clarified thatBreference by the High Court to any person or institution designatedby it shall not be regarded as delegation of judicial power.

Explanation 3: The High Court may take steps to encourage theparties to refer the disputes to institutionalised arbitration by aprofessional Indian or International Arbitral Institute.

C[NOTE: The proposed section 11 (6A) envisages the same processof determination as is reflected in the proposed amendment tosection 8. Explanation 2 envisages that reference by the HighCourt to any person or institution designated by it shall not beregarded as delegation of judicial power. Explanation 3 has beeninserted with the hope and expectation that High Courts wouldDencourage the parties to refer the disputes to institutionalizearbitration by professional Indian or international arbitral institute.]

(v) In sub-section (7), after the words “or sub-section (6)” addthe words “or subsection (6A)” and after the words “to the” deletethe words “Chief Justice or the” and add the words “High CourtEis final where an arbitral tribunal has been appointed or a” andafter the words “person or institution” add the words “has been”and after the words “designated by” delete the words “him isfinal” and insert the words “the High Court, and no appeal,including letters patent appeal, shall lie against such order.”

[NOTE: This amendment ensures thatF

a) an affirmative judicial finding regarding the existence of thearbitration agreement; and (b) the administrative act of appointingthe arbitrator are final and non-appealabe.]

Section 37, which is the appeal provision, was also sought to beamended as follows:G

Amendment of Section 37

20. In section 37,

(i) In sub-section (1), renumber sub-clause “(a)” as sub-clause“(b)” and insert sub-clause “(a)refusing to refer the parties toarbitration under section 8;”H

(ii) In sub-section (1), renumber sub-clause “(b)” as sub-clause“(d)” and insert sub-clause “(c) refusing to appoint an arbitratoror refusing to refer such appointment to person or institutiondesignated by it under section 11, in the case of an arbitrationother than an international commercial arbitration”.

[NOTE: Sub-sections (a) and (c) have been added to provide forappeal in cases of orders refusing to refer parties to arbitrationunder section 8 (mirroring the existing provision in section 50) andto provide an appeal where the High Court refuses to appoint anarbitrator respectively.]

(iii) In sub-section (3), after the words “No second appeal” addthe words “, including letters patent appeal,”

[NOTE: This amendment is clarificatory and reduces the scopeof the party to file an LPA.]

20. It will be seen that when Parliament enacted the 2015amendment pursuant to the Law Commission Report, it followed theScheme of the Law Commission’s Report qua Section 8 and Section 37by enacting the words “….. unless it finds that prima facie no validarbitration agreement exists……” in Section 8(1) and the insertion ofsub-clause (a) in Section 37(1) providing an appeal in an order madeunder Section 8, which refuses to refer parties to arbitration. However,so far as Section 11(6) and Section 11(6A) are concerned, what wasrecommended by the Law Commission was not incorporated. Section11(6A) merely confines examination of the Court to the existence of anarbitration agreement. Section 11(7) was retained, by which no appealcould be filed under an order made under Section 11(6) read with Section11(6A), whether the Court’s determination led to finding that thearbitration agreement existed or did not exist on the facts of givencase. Concomitantly, no amendment was made to Section 37(1), asrecommended by the Law Commission.

21. However, by process of judicial interpretation, Vidya Drolia(supra) has now read the “prima facie test” into Section 11(6A) so as tobring the provisions of Sections 8(1) and 11(6) r/w 11(6A) on par.Considering that Section 11(7) and Section 37 have not been amended,an anomaly thus arises. Whereas in cases decided under Section 8, arefusal to refer parties to arbitration is appealable under Section 37(1)(a),a similar refusal to refer parties to arbitration under Section 11(6) readwith Sections 6(A) and 7 is not appealable. In the light of what has been

Adecided in Vidya Drolia (supra), Parliament may need to have re-lookat Section 11(7) and Section 37 so that orders made under Sections 8and 11 are brought on par qua appealability as well.

22. We now come to the facts of the present case. It is firstimportant to set out the CFSL report dated 29[th] September, 2019, inwhich the CFSL found:B

“Result of Examination:

It has not been possible to express any opinion regarding theauthorship of questioned signatures marked A-1 to A-6 incomparison with the standard signatures marked A-1 to A-11 andS-1 to S-16 attributed to M.G. Stephen, due to the reason that theCmodel of both the sets of signatures are different, hence, technicallynot comparable.”

23. Since, the CFSL did not express an opinion either way, it becameincumbent upon the learned Single Judge to determine as to whether theAgreement dated 7[th] July, 2014 could have been entered into given theDsurrounding circumstances of the case. As Shri Divan rightly points out,there are no negotiations which lead upto the 7[th] July, 2014 Agreementthat are on record. Secondly, negotiations that take place only after 7[th]July, 2014 in which draft agreement is deliberated upon between thesame parties. It would stretch incredulity to state that on the same subjectmatter negotiations and draft agreement would be spoken about afterEa final signed agreement has been agreed upon between the parties.Secondly, he rightly points out that the Agreement is notarized inFaridabad, Haryana, with no explanation worth the name when contractis to be executed in Bihar by one of the parties whose registered officeis in Bihar and the other party whose registered office is in Mumbai.FThirdly, the Notary who is said to have notarized the Agreement was notlicensed to do so the same, his license having expired earlier, fact thatis accepted even by the Respondents.

24. Even otherwise, some of the learned Single Judge’s conclusionsare plainly incorrect and against the record. The learned Single Judgeholds:G

“39. ….. Admittedly on 22.09.2014, LOI was awarded to therespondent and on the petitioner raising an invoice for Rs.25 Lakhson 27.09.2014, respondent actually made payment on 29.09.2014.Counsel for the petitioner has also shown the email dated27.09.2014 whereby the respondent had asked the petitioner toHraise the invoice on its letter head…..”

25. This is plainly incorrect in view of the correspondence andpleadings between the parties, as an invoice was raised on Process,Process making payment on 29[th] September, 2014 and not the Appellant.Equally, the finding that draft Consultancy Agreement was sent on15[th] July, 2014 containing an arbitration clause, parties being ad idemregarding submission of the disputes to arbitration is also plainly incorrectin view of the fact that on the same day, an email was sent back inwhich various terms were disputed, there being no concluded contractbetween the parties. Also, the finding that Process was sub-contractorof the Respondent, is contrary to the pleadings between the parties which,as we have seen, had ranged from Process being joint venture partnerof the Appellant to Process having common Directors with the Appellant,and to Process thereafter being described as the lead partner. Sub-contractor-ship is not pleaded at all by the Respondent, the aforesaidarising only from written submissions made before the learned SingleJudge.26. The allegation that the Consultancy Agreement of 7[th] July,2014 had signature that may not be that of Mr. M.G. Stephen wasbrushed aside stating that an arbitration agreement need not be signedby the parties. That is entirely besides the point. Mr. M.G. Stephen hassworn to an affidavit filed before the High Court that the signaturesappearing on the 7[th] July, 2014 agreement are not his signatures, as aresult of which the Appellant cannot be said to have entered into anagreement at all on 7[th] July, 2014. Again, in paragraph 45, the learnedSingle Judge’s finding that there exists an arbitration agreement betweenthe parties as contained in the “draft agreement” exchanged by emaildated 7[th] July, 2014, is incorrect for two reasons. The draft agreementsent by email was exchanged on 15[th] July, 2014 and not on 7[th] July, 2014.Secondly, the email in reply to the email of 15[th] July, 2014 shows thatthere was no concluded contract between the parties. Also, the pleadingwith which the parties went to Court was that there was concludedcontract between the parties on 7[th] July, 2014. There was no pleadingworthy of the name that on 15[th] July, 2014, draft agreement wasexchanged between the parties, as result of which concluded contractemanated therefrom.

27. The facts of this case remind one of Alice in Wonderland. InChapter II of Lewis Caroll’s classic, after little Alice had gone down theRabbit hole, she exclaims “Curiouser and curiouser!” and Lewis Carollstates “(she was so much surprised, that for the moment she quite forgot

Ahow to speak good English)”. This is case which eminently cries forthe truth to out between the parties through documentary evidence andcross-examination. Large pieces of the jigsaw puzzle that forms thedocumentary evidence between the parties in this case remained unfilled.The emails dated 22[nd] July, 2014 and 25[th] July, 2014 produced here forthe first time as well as certain correspondence between SBPDCL andBthe Respondent do show that there is some dealing between the Appellantand the Respondent qua tender floated by SBPDCL, but that is notsufficient to conclude that there is concluded contract between theparties, which contains an arbitration clause. Given the inconclusive natureof the finding by CFSL together with the signing of the agreement inCHaryana by parties whose registered offices are at Bombay and Biharqua works to be executed in Bihar; given the fact that the Notary whosigned the agreement was not authorised to do so and various otherconundrums that arise on the facts of this case, it is unsafe to conclude,one way or the other, that an arbitration agreement exists between theparties. The prima facie review spoken of in Vidya Dhrolia (supra) canDlead to only one conclusion on the facts of this case - that deeperconsideration of whether an arbitration agreement exists between theparties must be left to an Arbitrator who is to examine the documentaryevidence produced before him in detail after witnesses are cross-examinedon the same. For all these reasons, we set aside the impugned judgment

Eof the Delhi High Court in so far as it conclusively finds that there is anArbitration Agreement between the parties. However, we uphold theultimate order appointing Justice G.S. Sistani, retired Delhi High CourtJudge as Sole Arbitrator. The learned Judge will first determine as apreliminary issue as to whether an Arbitration Agreement exists betweenthe parties, and go on to decide the merits of the case only if it is firstFfound that such an agreement exists. It is clarified that all issues will bedecided without being influenced by the observations made by this courtwhich are only prima facie in nature. The appeal is allowed in theaforesaid terms.GDivya PandeyAppeal partly allowed.